Executive Board of the International Monetary Fund (IMF) on Friday approved a disbursement under the Rapid Credit Facility (RCF) equivalent to US$91 million to help Malawi meet the urgent balance of payment (BOP) needs stemming from the COVID-19 pandemic.
The IMF notes in a statement that Malawi is being severely affected by the COVID-19 pandemic and that spillovers from the sharp global slowdown as well as the economic disruption in the region are weighing on international trade, tourism, remittances, investment, and consumption.
“The national lockdown introduced to contain the pandemic has also impacted the near-term economic outlook, which has deteriorated significantly, with large uncertainties surrounding the duration and spread of the pandemic.”
However Malawi government authorities have proactively responded to the pandemic with a national response plan—supported by the World Health Organization and other development partners with measures to preserve macroeconomic stability while protecting the vulnerable.
Key elements include increased health sector outlays, supporting incomes and food security of the most vulnerable households with expanded social assistance and grain purchase programs, and easing liquidity constraints in the banking system.
However, the IMF says the deteriorating macroeconomic outlook and policy responses to mitigate the impact of the pandemic on Malawi are creating an urgent BOP need.
It’s says it’s financing will help fill part of the external financing gap and catalyze other concessional financing.
Following the Executive Board’s discussion of Malawi, Mr. Zhang, Deputy Managing Director and Chair, said the IMF’s emergency financing under the Rapid Credit Facility will help the authorities meet the large external financing gap and catalyze further assistance from the international community.
“Additional concessional donor support will be critical to close the remaining external financing gap and facilitate the needed interventions to ease the economic and social impacts of the pandemic, while preserving Malawi’s hard-earned macroeconomic stability.”
Zhang said widening of the budget deficit is appropriate in the near-term, given the fiscal costs associated with the economic slowdown and critical additional health care and social spending needs, which should be executed transparently and targeted to the most affected parts of society.
“The authorities’ commitment to the audit of COVID-19 related spending is welcome. Once the crisis abates, it will be important to safeguard medium-term debt sustainability by boosting domestic revenue mobilization and enhancing public financial management, ” Zhang says.
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